Economy grows, recession fears ease

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jeremy torobin
OTTAWA— Globe and Mail Update
Published Friday, Sep. 30, 2011 8:34AM EDT
Last updated Friday, Sep. 30, 2011 9:12AM EDT


The domestic economy eked out 0.3-per-cent growth in July, Statistics Canada said Friday, all but confirming that the country did not slip into recession in the third quarter despite a storm of threats from abroad.

The gain in gross domestic product matched economists’ expectations and followed a 0.2-per-cent increase in the previous month, as the economy started growing again after shrinking on an annual basis in the second quarter.

Growth in July was led by the manufacturing and wholesaling sectors, Statscan said. Manufacturing saw a 1.4-per-cent increase, which was the first gain in four months for a sector that was hampered in the second quarter by supply-chain disruptions linked to the Japanese earthquake. The wholesaling industry gained by 1.5 per cent. In addition, the end of a labour dispute at Canada Post helped transportation and warehousing grow 1.8 per cent.

At the same time, construction dipped 0.3 per cent, retailing fell 0.7 per cent on fewer sales of cars and trucks, and a cooling home resale market meant a 1.1-per cent-drop in output by real estate agents and brokers. Also, the mining and oil-and-gas sector fell 0.3 per cent, as a big drop in natural-gas extraction eclipsed a boost in oil production. Oil production had been crimped in the second quarter by shutdowns linked to wildfires in northern Alberta.

All told, though, the report will be met with some guarded optimism that Canada’s economy is starting from a better foundation going into the last part of the year, in which many analysts worry the fear gripping financial markets in recent weeks will hit business and consumer confidence much harder than it has already. The economy likely grew at an annual pace of between 1 per cent and 2 per cent in the July-to-September period, according to median forecasts, underwhelming to be sure but better than a downturn. However, all bets could be off going forward should policy makers in the United States fail to give their recovery a jolt or, more immediately, if Europe is unable to contain its debt crisis.

Still, the economy was 2.3-per-cent bigger in July than in the same month a year earlier, Statscan said. And though the global backdrop is fraught with uncertainty and potential tripwires, Canada will get a bit of a buffer as the currency drops against the U.S. dollar, helping make exports more affordable to foreign buyers.

"While this report largely pre-dates the onset of serious financial market turbulence - which began in earnest in late July - it does suggest the Canadian economy had some decent momentum heading into the turmoil," said deputy chief economist Douglas Porter of BMO Nesbitt Burns.

The July gain builds in annualized growth of 1.3 per cent for all of Q3 (i.e. assuming no change in the next two months), heavily reducing the risk that Canada has somehow stumbled into a technical recession ahead of the rest of the world ... Overall, a nice report, but seemingly drawn from the Pleistocene era, given the recent sharp drop in confidence."